Wednesday, June 23, 2010

FOREIGN DIRECT INVESTMENTS

blogtunm.blogspot.com Tun M

1. FDI had proved useful for the creation of jobs in our country. But today things have changed. We no longer need to create low pay jobs as we no longer have the workers. These jobs go to the foreign workers. This does not benefit us much.

2. Besides the foreign investors bring in hardly any capital. They borrow locally from foreign banks operating here. During the tax holiday period they pay no tax. After the holiday is over they avoid paying tax through transfer pricing i.e. by selling their products to companies owned by them established in low-tax countries.

3. They also enjoy our subsidies for fuel and electricity.

4. FDI for investment in the stock market is much liked by the stock exchage as there would be more commission. But the foreign funds, especially pension funds invest in order to push up stock prices. The index would rise. The moment something happens, including falling share prices in New York or other cities, foreign investors would dump their holdings and pull put of the country (flight to quality). They would make huge capital gains but local investors who had followed them would be left holding the devalued shares. Huge amounts of market capital would be lost. This was what happened in the financial crisis of 1997-98.

5. We should be more selective with FDI. Where there is local capacity as in property development in designated corridors, and Government is willing to invest in infrastructures, there is no necessity to invite foreign investors. Certainly we should not encourage foreign developers to develop high cost projects which are not within reach of local buyers. Rather Government should help local investors to develop these specialised areas by building needed infrastructure.

6. If we wish to have FDI, it should be confined to industries which bring in technologies which can add high value to the products. The pay for the workers at different levels should be higher as such industries can afford higher pay. In fact we should phase out the industries dependent on cheap labour. Wherever possible, incentives such as tax exemptions should be given to industries owned by locals if they bring in technologies from abroad. Even the expansion of certain locally-owned industries should be given incentives by the Government. This is the strategy employed by Japan and Korea. By supporting local industries to grow big, they now have world class business with their own brand names.